Trader-turned-tycoon Abhey Oswal held for FERA evasion

Tycoon held for FERA evasion.

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Shiv Tankja

Alok Tiwari

December 31, 1990

ISSUE DATE: December 31, 1990

UPDATED: September 20, 2013 07:57 IST

A product of the gung-ho '80s, Abhey Oswal's astronomical growth had left the corporate watchers gaping in wonder. But in trying to overreach himself, he has fallen foul of the law. His arrest last fortnight under the Foreign Exchange Regulation Act (FERA) by the Enforcement Directorate may prove to be a damper on the dreams of the trader-turned-tycoon.

A scion of the Ludhiana-based family known mostly for woollens, Oswal, 42, had set up Oswal Agro Ltd in 1979 and within a decade was dabbling in a high-profile sector like petrochemicals.

High drama marked the headline-making arrest. As Oswal's flight from
Bombay touched ground at Delhi on the morning of December 4, a posse of
six directorate officers led by Assistant Director R.K. Sharma were
waiting for him. He was served summons at the airport and whisked away
to the directorate headquarters.

Abhey Oswal

Though the case against Oswal seems strong, it clearly also has political contours.

After a gruelling two-hour session of
questioning, Oswal was informed that he was under arrest on two counts
of FERA violations. The chubby-faced industrialist, known for his relish for dramatics, immediately sprawled on the floor complaining of chest
pain.

After initial medical examination, he was moved to
Delhi's well-equipped Escorts heart hospital where the doctors took him
in for check-ups. As his lawyers struggled in the courts for his bail,
he remained lodged in the hospital.

Their efforts received a setback
when Delhi's additional chief metropolitan magistrate, M.L. Sahani,
remanded him to judicial custody till December 21. His lawyers then
moved the high court to get him out.

Oswal has been charged
with evasion of custom duty through under-invoicing of imported goods
and illegal foreign exchange transactions through his front companies
based in London, Singapore and New York.

They include Indo-Europe Food
Ltd, Faevor Bond Ltd and Globe Enterprises, which were managed by
Oswal's relation P.D. Jain. Oswal allegedly exported agro-products,
mainly soya and rice bran extractions, to Indo-Europe at an
under-invoiced price and further used those balance funds for
under-invoicing his imports.

The investigating officers claim
to have unearthed an account of Oswal in Swiss Banking Corporation,
Chiasso, Switzerland. During questioning, Oswal admitted that he had the account but refused to give a letter of authority to the directorate to allow an investigation into the transactions made through it.

Factory in Ludhiana: Under fire

The directorate is also looking into the fate of the $6 million (Rs 10.8
crore) which was loaned by the London branch of Punjab National Bank to
Indo-Europe.

The money was advanced to Oswal Agro Mills as an
interest-free loan but never reached India. It was allegedly used to
make payments over and above the invoiced value for Oswal imports.

Further, Oswal is charged with bypassing import restrictions placed on his companies during 1983-85 as he floated another front company in India called Shahji International.

The company imported portable gensets worth Rs 2 crore and TV sets worth Rs 29 lakh, getting them cheap by under-invoicing. The difference between the actual value and under-invoiced value was paid by Indo-Europe.

Shahji sold the goods at cost price to Oswal Agro Mills which in turn resold them in India and made a whopping Rs 9 crore in profit. All the transactions, the directorate contends, were conducted without the approval of the Reserve Bank of India.

Though the investigating officers haven't yet come out with exact figures, the alleged FERA violations may amount to several million dollars.

Whatever the merit of the charges, Oswal's arrest has rattled the corporate world and set them speculating about the motives of the Government. Some have even suggested that a Bombay-based giant industrial house, that has regained its political influence after the change in government in Delhi, may be behind the move as it feels threatened by Oswal's trespassing into what it considers its domain - petrochemicals.

The arrest is also linked with the ongoing factional fight within Congress circles; Oswal was closely associated with an aide and friend of the former prime minister Rajiv Gandhi.

Even last year eyebrows were raised when Oswal despite his comparatively small capital base bagged the Rs 695 crore contract for setting up a fertiliser plant in Uttar Pradesh and Ambani style went in for a mega issue of Rs 500 crore but unlike them it was under-subscribed by Rs 30 crore.

Indeed, Oswal's expansion plans of his petro-projects, in particular the expansion of the Chembur plant's ethylene capacity by one lakh tonnes per annum may have prompted preemptive action by his rivals.

Predictably, the directorate officials hotly deny any string-pulling behind the crackdown on the Oswal group. They claim that Oswal and his companies were under investigation for more than six months.

Sharma and Enforcement Officer R.K. Handoo had visited the UK and Germany twice to investigate Oswal's activities between July and September, much before the new Government was installed in Delhi.

There are others who argue that the chairman of Oswal group has been consumed by the fire of his own ambition. It is known that 10 years after the small-time trader started his corporate climb, his empire was worth about Rs 500 crore with a strong presence in the agro-industries.

Spurred on by this success, Oswal set about to conquer the comparatively new and fast expanding field of petrochemicals and in quick succession took over among others Union Carbide's petro plant at Chembur in Bombay and ICI's unit at Rishra in West Bengal. Along the way he might have resorted to financial irregularities.

This is not to deny that trouble for embattled Oswal had started after the National Front government took charge last year. His group was among the few business houses that were brought under close scrutiny by that government (India Today, July 31, 1990).

Incidentally, the last high-profile FERA arrest of L.M. Thapar in 1986 was made under V.P. Singh as finance minister. But turning the heat on the Oswals had the inevitable fallout in the beating taken by Oswal's stock reputation - and price - in the country's share markets.

The group's dipping fortune has now climaxed in Oswal's arrest, hinting at harder times for him. If convicted, he is liable to face a seven-year jail term besides penalties. He may go scot-free as the history of convictions in white-collar crime is not very encouraging anywhere in the world. Yet Oswal might like to ponder over what went wrong and how the dream had soured.

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